Have you heard about iBuyers? This is a relatively new business model in residential real estate where companies offer to buy your home for cash with a very short turnaround. These companies, such as Opendoor and Offerpad, make a preliminary offer, do a property inspection to determine needed repairs, and quickly offer a price for the home. The iBuyer then prepares the home for market, cleaning and making any necessary repairs, and lists the home for sale. Zillow, Redfin, and national real estate brokerages are starting to offer this model, too. Here’s a quick primer from Housing Wire that explores variations on this basic model.
Some clear advantages to the seller include fast turnaround and simplicity. Accept an offer, receive your cash, bid on the house of your dreams. This is a compelling story in our short attention span society. But what is the cost?
This story discusses the only study to date showing that sellers receive, on average, 11% less than on the open market when all costs are included.
That’s $45,000 in my neighborhood.
The iBuyer model works only if there is sufficient profit between buying the home and selling it. This creates an obvious incentive for the iBuyer-make the lowest offer to buy and sell the home at the highest price possible. What supposedly separates the iBuyer from the traditional flipper is advanced analytics to determine the market value of a home. The iBuyer model relies on a seller not knowing the market value of their home and/or a seller willing to accept a below market price. Sellers are trading money for speed and convenience.
There’s variation in the data. Some transactions were closer to market value, some were further. The key to making an informed decision is to understand what current market value is for your home before you accept an offer.
Before entertaining an offer from an iBuyer, learn the market value of your home from a local, independent appraiser.
Nice topic Joe. As a seller, its hard to imagine not knowing an good idea of market value before selling. 11% is quite a bit and I imagine a majority of sellers would want that 11% in pocket or close.
Thanks Bryan. There’s a real price to convenience.
This is a big deal Joe. The traditional model is being challenged right now, and the public would be wise to look deeply into the fine print of how this all works. The initial offer might actually look reasonable too, but it becomes a real problem if the tech company starts asking for credits for repairs on top of an already higher commission. This is a situation where an owner could actually end up losing under the umbrella of convenience. Be cautious and be informed. That’s my advice.
Great point Ryan. One of the articles I link to has an example of where repair costs had a big impact on money paid to the seller.